To facilitate the company’s proposed capital restructure I suggest that the existing 2 shares of $1 each be subdivided and split into 20 shares (i.e., a 10 for 1 share split); total paid up capital would remain at $2, so each share will have a paid up amount of 10¢.
Section 254H of the Corporations Act provides that “…..a company may convert all or
any of its shares into a larger ……number of shares by [ordinary] resolution passed
at a general meeting [of shareholders] …..” and that “….. the conversion takes effect
[either] on the day the resolution is passed or a later date specified in the resolution… ..”.
The process to achieve the share split is as follows:
- (a) The board should resolve to convene an
general meeting of shareholders (‘EGM’) to consider the share split and authorise the Company Secretary to issue a Notice of Meeting to all shareholders, the directors and the auditor (as required).
- Alternatively, where appropriate, the board might simply recommend that the shareholder sign a resolution approving the share split.
- (a) Where applicable, prepare and post out the Notice to shareholders with a suitable explanatory letter/memorandum giving the requisite minimum notice period (i.e. 21 days – sec.249H(1) – or 28 days for an Australian stock exchange listed company – sec.249HA).
- The notice period may be shortened (in other than listed companies) if shareholders with at least 95% of the shares agree – sec.249H(4).
- (a) Hold the EGM for shareholders to vote in favour of the resolution (i.e., greater than 50% as an ordinary resolution).
- If there is only 1 shareholder in a company that shareholder may pass the resolution by recording it in writing and signing that record – sec.249B – in lieu of holding a meeting.
- If the company is a proprietary limited company (Pty Ltd) then, rather than holding a meeting, those shareholders too may pass the resolution by recording it in writing and signing that record – sec.249A – but in such case all
shareholders must sign and the resolution is not passed until the [date the] last shareholder signs.
Sample shareholder resolution wording:
That, in accordance with Section 254H(1) of the Corporations Act, the Company convert its existing share capital comprising two (2) ordinary shares each fully paid into a larger number by splitting each share into 10 shares making a total of twenty (20) shares, with effect from the date of this declaration.
- (a) Prepare and lodge a Form 2205 “Notification of Resolutions Regarding Shares” (including Attachment 1) with ASIC within 1 month of the date the resolution is passed.
- The Attachment 1 (to Form 2205) requires details of the ‘top 20’ shareholders to also be lodged with ASIC for Pty Ltd companies. ASIC does not record any shareholder details for public companies.
- Update the Share Register to record the share split and prepare a new Share Certificate.
- A suitable ‘shareholder letter’ could be despatched after the EGM/resolution, designed to inform all shareholders of the outcome of the meeting as well as informing them of their new resultant holding (ie, with attached Share Certificate or Holding Statement).
*Originally written by Company Secretary, an Australian virtual company secretary service.